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Bowles: Strengthening EU banks to get Europe back on the path to growth and trade

Sharon Bowles MEP, Chair of the European Parliament’s Economic and Monetary Affairs Committee, today welcomed the vote in favour of the Capital Requirements Directive and Regulation, which implements Basel III – the international accord which sets global standards for banks – into EU law.

While in recent weeks the hotly politicised subject of capping bankers’ bonuses has dominated the headlines this measure is in fact part of a much larger raft of legislation which will increase banks’ resilience to future financial crises by requiring them to have higher capital buffers to absorb losses and hold more easy-to-sell liquid assets. In addition, the regulation and directive introduce various other measures to strengthen corporate governance and transparency, and encourage growth and lending to the real economy in the EU.

Sharon Bowles MEP said:

“After more than thirty rounds of negotiations, this agreement will make our banking sector more resilient and brings us in line with international standards.

“Europe applies these rules to all banks, not just the big ones like in the US, so the rules are more complex and take account of the range of smaller banks and varying business models.

Encouraging banks to lend:

“Helping banks to lend to small businesses and incentivising trade finance will be key to securing Europe’s recovery. With growth scarce, it is the wrong time to treat trade unfavourably and so we have recognised the lower risk of short term trade finance loans that are underpinned by the traded goods and services.

National flexibility:

“Within an EU framework we have also retained flexibility for countries to impose stricter requirements on banks to address bubbles in the economy such as the housing market and enable ring-fencing of retail operations.

Bonuses:

“The bonus cap inevitably takes the limelight – realignment of the pay/bonus ratio to reasonable proportions reduces perverse incentives to risky behaviour even if total pay stays the same.

“It should be remembered that banks have a monopoly on liquidity and lending, both of which are ultimately provided at public expense. For this reason I do not think it is appropriate to roll out the same bonus cap across all financial services legislation.

Transparency:

“When it comes to transparency we will get to find out which banks pay their fair share of tax and where. In times of austerity paying your fair share of tax is imperative. Banks are at the core of the economy – which is symbolic – and the march into all sectors has begun.

“Light will now be shed on what is pledged to whom through enhanced disclosures of repo transactions and asset encumbrance.

“Authorities will now also be required to check an EU-wide bankers blacklist to see if bankers have been sanctioned for misbehaviour in the past.”